(Bloomberg) --
Pound strategists see limited currency impact from the U.K. Supreme Court's landmark ruling Tuesday on whether Prime Minister Boris Johnson broke the law by suspending Parliament.
That's because the verdict, whatever it is, will do little to alter the biggest unknown on the horizon for U.K. markets -- the uncertainty over whether Britain will exit the European Union with or without a deal on Oct. 31. Or if the nation will leave by that date at all, with another extension still remaining a possibility.
Option prices suggest some scope for increased pound fluctuations this week, but not much. Implied volatility on one-week sterling-dollar options has climbed above this year's average to the highest level among Group-of-10 currencies, yet the so-called butterfly trades signal that swings will fall short of the large ranges seen earlier this month.
“Anything that boosts the power of members of Parliament will be taken well by the market but it's hard to say that this is a big moment as the end outcomes and probabilities of Brexit remain the same if the judges do rule against the government,” said Jordan Rochester, a strategist at Nomura International Plc, who expects sterling to move less than 0.5% in either direction in response to the verdict.
Sterling may also draw some support from a law against a no-deal Brexit, passed before the prime minister curtailed business in Westminster. The Supreme Court's conclusion is due at 10:30 a.m. Tuesday in London. The pound was around $1.2425 Monday.
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“There are bigger issues here for the U.K.'s constitution over the long run rather than markets in the short run,” said Stephen Gallo, European head of currencies strategy at the Bank of Montreal. “I can't see why a ruling against the government would be negative for the pound, but even if that happens it remains to be seen what pro-EU members of the Commons would do with the time they are given if Parliament is recalled. We just don't know.”
--With assistance from Vassilis Karamanis.
To contact the reporters on this story: Michael Hunter in London at mhunter72@bloomberg.net;Anooja Debnath in London at adebnath@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net, Anil Varma, William Shaw
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